Professional Level Options Module, Paper P6 (SGP)

Answers Professional Level – Options Module, Paper P6 (SGP) Advanced Taxation (Singapore) June 2013 Answers Note: ACCA does not require candidates...
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Professional Level – Options Module, Paper P6 (SGP) Advanced Taxation (Singapore)

June 2013 Answers

Note: ACCA does not require candidates to quote section numbers or other statutory or case references as part of their answers. Where such references are shown below, they are given for information purposes only. 1

Tax Advisor Firm’s address The Group Chairman United Diversified Group Limited (UDGL) Client address June 2013 Dear Sir I refer to your request to seek tax advice on all the pertinent Singapore tax issues in relation to your Group’s planned activities in Singapore. As requested, I am pleased to advise as follows: (i)

The reasons why Singapore is generally regarded as an ideal country in which to locate overseas holding companies Singapore has a very favourable tax environment in order to attract the location of overseas holding companies. Apart from its low headline corporate tax rate of 17% which is significantly lower than Country A’s rate of 30%, there is also an extensive list of tax incentives designed to further reduce the already low headline corporate tax rate. Even without special tax incentives, the effective corporate tax rate is very much lower than 17% for companies with low chargeable incomes, after taking into account the full and partial tax exemption for chargeable incomes below $300,000. There is no capital gains tax regime in Singapore. Gains from the disposal of investments would ordinarily constitute capital gains if the company disposing of these investments can substantiate that they are held for long-term and strategic reasons and are not in the course of an investment dealing business. Moreover, based on the IRAS e-Tax Guide on ‘Income Tax: Certainty of Non-taxation of Companies’ Gains on Disposal of Equity Investments’ dated 30 May 2012, the gains derived from the disposal of ordinary shares in an investee company during the period 1 June 2012 to 31 May 2017 (both dates inclusive) are not taxable, if immediately prior to the date of the share disposal, the divesting company has held at least 20% of the ordinary shares in the investee company for a continuous period of at least 24 months. Tutorial note: The relief for gains does not apply to a divesting company whose gains or profits from the disposal of shares are included as part of its income based on the provisions of s.26 of the Income Tax Act, Chapter 134 of Singapore (profits of insurers); or the disposal of shares in an unlisted investee company which is in the business of trading or holding Singapore immovable properties (other than the business of property development). However, s.26 ITA Chapter 134 is not within the P6 syllabus. Repatriation of dividends from a Singapore company is not subject to any additional Singapore tax consequences. There is no dividend withholding tax and under the one-tier corporate tax system, shareholders are not taxed in Singapore upon receipt of dividends from Singapore, regardless of whether they are individuals or companies, locals or foreigners. Singapore also has a comprehensive foreign tax credit system. This means that Singapore tax resident companies can either benefit from the wide network of double taxation agreements (DTAs) which Singapore has signed with many countries, or they can alternatively claim unilateral tax relief for all types of income earned from non-treaty countries. The residence status of a company is determined by the location where the control and management of the business is exercised. Control and management is vested in the board of directors and the place of residence is normally taken to be the location where the board meets. Singapore has a very stable tax regime with an advance ruling system which provides certainty to investors.

(ii)

The tax incentives for qualifying headquarters companies Generally, for a foreign company planning to locate its regional headquarters company in Singapore, the most relevant tax incentives in Singapore would be the Regional Headquarters Award (RHA) and the International Headquarters Award (IHA), both administered by the Singapore Economic Development Board (EDB). Companies with RHA status pay a lower corporate tax rate of 15% for three years plus a potential further two years on incremental qualifying income, if the prescribed conditions are satisfied. If the applicant company satisfies all the minimum requirements by the third year of the incentive period, it will enjoy the 15% concessionary tax rate on qualifying income for an additional two years. The applicant company must satisfy all of the following minimum requirements by the milestone indicated and maintain these until the end of the incentive period: –

a paid-up capital of $0·2 million and $0·5 million by the end of Year 1 and Year 3 of the incentive period respectively;



three headquarters services to network entities in three countries outside Singapore by the end of Year 1. Network entities refer to any entity within the group, including subsidiaries, sister companies, branches, joint ventures and representative offices as well as to franchises;

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75% skilled staff throughout the incentive period. Skilled employment refers to at least an NTC2 Certificate qualification;



an additional ten professionals in Singapore by the end of Year 3, where ‘professionals’ refers to at least a diploma qualification;



an average remuneration per worker of $100,000 per annum for the top five executive designations by the end of Year 3;



an additional $2 million in annual total business spending in Singapore by the end of Year 3. Total business spending refers to total operating costs minus the costs of work subcontracted outside Singapore, royalties and know-how fees paid overseas, raw materials, components and packaging;



an additional $3 million in total business spending cumulatively for the first three years of the incentive period.

Substantially better tax incentives in the form of lower tax rates of either 10% or 5% are possible with the IHA, but to achieve this award, applicants are expected to substantially exceed the criteria listed for the RHA. (iii) The tax incentives for setting up research and development (R&D) activities R&D expenses would not be deductible at all based on conventional tax rules, as they are not incurred in the production of income; however, generous tax breaks have been offered by the Singapore government to promote R&D activities undertaken in Singapore. Essentially, these can translate to a government subsidy of up to 68 cents for every $1 of qualifying R&D expenditure spent. A project is a qualifying R&D activity if it meets the definition of R&D under s.2 of the Singapore Income Tax Act and does not fall within the list of specified excluded activities. Under s.2, R&D means any systematic, investigative and experimental study which involves novelty or technical risk carried out in the field of science or technology with the object of acquiring new knowledge or using the results of the study for the production or improvement of materials, devices, products, produce or processes. The deductions currently available for qualifying R&D expenditure (years of assessment 2011 to 2015) are as follows: –

A tax deduction of 400% for the first $400,000 of R&D expenditure.



A tax deduction of 150% of expenditure (comprising staff costs and consumables) exceeding the $400,000 cap if the R&D is done in Singapore and of 100% of the expenditure exceeding the $400,000 cap for R&D done overseas. R&D done overseas must be related to the Singapore trade or business.

(iv) The tax incentives for transferring intellectual property (IP) to Singapore To promote Singapore as an international intellectual property (IP) hub, writing down allowances (WDAs) can be claimed over five years on a straight-line basis, based on 100% of the capital expenditure incurred on the acquisition of the IP rights for use in any trade under the normal tax rules. The IP can take the form of any patent, copyright, trademark, registered design, geographical indication, layout design of an integrated circuit, or trade secret or information of commercial value. To qualify for the WDAs, the Singapore claimant has to acquire both the legal and economic ownership of the IP rights. Legal ownership means the legal assignment of the IP right is granted to the transferee, whereas economic ownership means the future economic benefits attributable to the IP right will accrue to the transferee. In practice, the legal ownership requirement may be waived by the EDB on a case-by-case basis if the applicant can demonstrate why the legal ownership has to be retained with the parent overseas company. In addition, for the years of assessment 2011 to 2015, an enhanced WDA for up to 400% (100% standard and 300% additional) of the first $400,000 of the qualifying costs incurred in the acquisition of IP rights claim can be made over five years under the Productivity and Innovation Credit (PIC) scheme, provided the company satisfies both the legal and economic ownership requirements. Except in the case of qualifying design expenditure, there is no requirement to seek prior approval in order to enjoy the PIC incentive. Enhanced PIC WDAs may be applicable where the respective IPs are already developed in Thailand or China, and the Singapore company incurs capital expenditure to acquire such rights. (v)

Using a separate R&D company It is common practice to rationalise business operations and segregate companies by functions within a group, particularly where, as with an R&D company, the company has its own trading activities which are different from those carried out in the other group trading companies. Generally, having separate companies to undertake separate activities will not result in any tax disadvantages, apart from the compliance costs involved in maintaining two companies, instead of one, provided that where one group company is in a tax loss position whilst another is in a tax paying position, it is possible to transfer the tax losses from one entity to another. Such group relief for losses is available in Singapore where the companies concerned satisfy all of the following conditions: – – –

they are incorporated in Singapore; they have the same accounting year end; and they belong to the same group of companies.

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This last condition is satisfied if at least 75% of the ordinary share capital of one company is beneficially held, directly or indirectly by the other; or at least 75% of the ordinary shares in each of the two companies are beneficially held, directly or indirectly, by a third Singapore incorporated company. The Group should, therefore, ensure that the R&D company and any other Singapore companies will satisfy these conditions. We hope the above advice is helpful to you. Should there be any questions or further advice you require, please contact me. Yours sincerely Tax Advisor

2

Green Ultrotech Pte Ltd (GUPL) (a)

Computation of pioneer profit and tax payable for the year of assessment 2013 (non-pioneer profit)

Net profit Less: Interest on fixed deposit account Add donations Add other non-deductible expenses Adjusted trade profit before capital allowances Abatement Adjusted trade profit after abatement Less: Capital allowances (apportionment based on sales) (i.e. 4m/5m x 50,000 and 1m/5m x 50,000) Adjusted trade income after capital allowances Interest on fixed deposit account (non-pioneer) Statutory income Less: Qualifying donations (250%)

Pioneer profits

Pioneer $ 368,400 (6,400) 8,000 1,230,000 –––––––––– 1,600,000 (30,000) –––––––––– 1,570,000

Non-pioneer $ 7,600 (4,600) 2,000 15,000 ––––––– 20,000 30,000 ––––––– 50,000#

Total $ 376,000 (11,000) 10,000 1,245,000 –––––––––– 1,620,000 – –––––––––– 1,620,000

(40,000) –––––––––– 1,530,000 0 –––––––––– 1,530,000 0 ––––––––––

(10,000) ––––––– 40,000 11,000 ––––––– 51,000 (25,000) –––––––

(50,000) –––––––––– 1,570,000 11,000 –––––––––– 1,581,000 (25,000) –––––––––– 1,556,000 ––––––––––

1,530,000 –––––––––– ––––––––––

Chargeable income Less: Partial exemption (75% of 10,000 + 50% of 16,000) Chargeable income after partial exemption Tax payable at 0%/17%

0 –––––––––– ––––––––––

# Deemed non-pioneer profit = 5% of $1,000,000

15

26,000 (15,500) ––––––– 10,500 ––––––– ––––––– 1,785 ––––––– –––––––

1,785 –––––––––– ––––––––––

(b)

Computation of pioneer profit and tax payable for the year of assessment 2013 (non-pioneer loss)

Net profit Less: Interest on fixed deposit account Add donations Add other non-deductible expenses Adjusted trade profit/(loss) before capital allowances Abatement Adjusted trade profit after abatement Interest on fixed deposit account (non-pioneer) Less: Capital allowances (apportionment based on sales) (i.e. 4m/5m x 50,000 and 1m/5m x 50,000)

Pioneer profits

Pioneer $ 368,400 (6,400) 8,000 1,230,000 –––––––––– 1,600,000 (33,600) –––––––––– 1,566,400 0 –––––––––– 1,566,400

Non-pioneer $ (46,000) (4,600) 2,000 15,000 ––––––– (33,600) 33,600 ––––––– 0 11,000 ––––––– 11,000

Total $ 322,400 (11,000) 10,000 1,245,000 –––––––––– 1,566,400 – –––––––––– 1,566,400 11,000 –––––––––– 1,577,400

(40,000) ––––––––––

(10,000) –––––––

(50,000) –––––––––– 1,527,400 ––––––––––

1,526,400 –––––––––– ––––––––––

Statutory income Less: Qualifying donations (250%)

1,000 (25,000) ––––––– (24,000) ––––––– 0

Qualifying donations carried forward Chargeable income Tax payable at 0%/17% (c)

3

0 –––––––––– ––––––––––

0 ––––––– –––––––

0 –––––––––– ––––––––––

Reasons which may satisfy the Comptroller that the loss was not incurred to obtain a tax advantage –

where the loss incurred was due to depressed sale prices arising from recession, poor market conditions, exceptionally strong competition and substandard products;



where the extent of the loss is reasonable, and: – direct expenses have been properly charged to both the pioneer and separate trades; and – appropriate and reasonable bases have been used in apportioning indirect expenses between the pioneer and separate trades;



where the separate trade was already in a loss position before the commencement of the pioneer trade.

Rejuvenate Conglomerate Pte Ltd (RCPL) (a)

Permanent establishment (PE) exposure in Asia (i)

Determination of the existence of a PE Whilst the definition of a PE in a respective jurisdiction based on its domestic laws is important, where there is an applicable double taxation agreement (DTA) between Singapore and the foreign jurisdiction, the definition of a PE in the DTA will take precedence over the domestic law. Under Singapore’s DTAs, the term ‘PE’ means a fixed place of business through which the business of an enterprise is wholly or partly carried on, and normally includes a place of management, a branch, an office, a factory, a workshop and a place of extraction of natural resources, etc. In addition, certain activities carried out in one country may also constitute a PE, notwithstanding that there is no fixed place of business established in that country. On the other hand, some activities carried out in one country will not constitute a PE. Some examples of both such activities are: –

A building site or a construction, assembly or installation project – the activity will be considered a PE if it lasts for more than a specified number of months or days (period test). The period test will be stipulated in the DTAs and typically ranges from six months to 12 months.



Supervisory activities connected with the building site or construction project – the activities will likewise be considered a PE if the activities carried out in a country exceed a certain period as stipulated under the DTA.



The furnishing of services (including consultancy services) by an enterprise through its employees or other personnel engaged by the enterprise for such purpose – again a number of DTAs specify a period test to determine whether a PE exists in a country when an enterprise renders services in that country.



Presence of an agent – the presence of an agent in a country who has, and habitually exercises, a general authority to negotiate and conclude contracts on behalf of the enterprise may constitute a PE of the enterprise in that country.



Use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise will not constitute a PE.

16

– (ii)

Maintenance of a fixed place of business solely for the purpose of carrying on any other activity of a preparatory or auxiliary character will not constitute a PE.

Tax consequences of having a PE If RCPL is regarded as having a PE, then the profits attributable to the PE in each location would be liable to tax in that country. In arriving at the taxable profit, the enterprise is allowed to deduct expenses which are reasonably attributable to the PE. This could give rise to double taxation if the income is also subject to tax in Singapore. Generally, no double taxation should arise if the foreign income is not received in Singapore; if the foreign income qualifies for tax exemption in Singapore; or if the foreign tax credit (FTC) claimable exceeds the Singapore tax payable on the same foreign income so that it effectively eliminates the Singapore tax payable. Even if FTC can be claimed under Singapore’s tax regime, it is still limited to the tax payable in Singapore under the existing source-by-source and country-by-country basis of claiming FTC. This means that if the Singapore company has a PE in a foreign country where it is subject to income tax at a rate exceeding the prevailing Singapore corporate tax rate (currently 17%), the additional foreign tax paid cannot be claimed as an FTC in Singapore. Companies which are in a tax loss position will be at a disadvantage. This is because under the FTC regime, foreign income received in Singapore must be set off against the company’s tax losses, if any. Therefore, in such a situation, the Singapore company may not be able to claim FTC for the tax paid in the foreign country on the profits attributable to its PE if the foreign income is received in Singapore and it will suffer a reduction in the Singapore tax losses which might otherwise have been available for offset against other income.

(b)

Individual income tax exposure of seconded employees (i)

Potential protection available under the tax treaty The ‘Dependent Personal Services’ Article provides that where the duration spent by personnel is short, exemption of tax may be granted by the country of source if certain conditions are met. Typically, the conditions which must be satisfied are: – – –

(ii)

the recipient is present in the source country not exceeding a certain period; the remuneration is paid by, or on behalf of, an employer who is not a resident of the source country; and the remuneration is not borne by a PE, or fixed base which the employer has in the country of source.

Effect of different policies A tax equalisation policy ensures that the employee neither pays more nor less tax as a result of the overseas posting. The hypothetical tax, i.e. the tax which would otherwise have been payable by the employee, is deducted from the employee’s salary. The employer gains in a case where the employee is sent to a low tax country. A tax protection policy entitles an employee to seek a reimbursement of any tax in excess of their hypothetical tax. The employee benefits if their actual tax liability is less than the hypothetical tax. In this case, since the employees of RCPL posted to Country X pay higher individual tax in Country X as compared to Singapore, both policies will result in the employer reimbursing the employees for the additional tax.

4

(a)

Supreme Apps Limited (SAL) (i)

Whether withholding tax applies SAL is not a tax resident of Singapore. Similarly, its Singapore branch is ordinarily treated as a non-resident of Singapore by the Inland Revenue Authority of Singapore (IRAS) as management and control is presumed to be exercised from its head office overseas. The nature of services provided to the Singapore tax resident company would likely be construed as technical services, which are subject to withholding tax at the prevailing corporate tax rate (currently 17%). Hence, the accountant’s advice is correct.

(ii)

Actions which can be taken To avoid the withholding tax or minimise the cash flow impact caused by the withholding tax, SAL can take any of the following measures: 1.

The Singapore branch of SAL may apply for a waiver of withholding tax on any of its income deemed to be sourced in Singapore, subject to the following conditions: – – – –

The branch is part of a substantial overseas group. As a guide, a group with turnover of at least US$50 million per annum on a consolidated basis may be considered a substantial group. The branch has been carrying on business in Singapore for at least two years. The branch has and continues to have a good record of compliance with the requirements of the taxation laws of Singapore. The head office of the company provides a letter of undertaking that should there be tax not paid by the branch arising from the waiver, the head office will make good the difference.

17

– –



(b)

At the time of application, the branch provides a schedule showing the names of the persons from whom income to be covered by the waiver will be received. The branch gives an undertaking to the Comptroller to: (i) report all payments on which withholding tax would be applicable, if not for the waiver, as income in its accounts; (ii) confirm that such income has been so reported when the tax computation is filed; (iii) inform him should it subsequently fail to meet the condition; and (iv) inform him of any impending decision to cease operations in Singapore. The waiver once granted will be valid indefinitely unless revoked by the Comptroller.

2.

Attempt to negotiate with the IRAS to subject the net income (i.e. net of deductible expenses) to withholding tax. This is a better outcome compared to suffering withholding tax on the gross amounts.

3.

Attempt to agree a lower withholding tax rate upfront with the IRAS.

4.

Demonstrate to the IRAS that the branch’s management and control is indeed exercised in Singapore. Although the IRAS tends to regard a branch as prima facie non-resident, this presumption can be rebutted if indeed the branch is given the autonomy to operate independently on its own, without interference from its head office. Where these conditions are present, then it can be treated as a resident of Singapore and, consequently, withholding tax would not be applicable for payments made to a resident branch. In practice, this is subject to agreement by the IRAS and may be hard to achieve.

Transfer pricing methods The following are the transfer pricing methods recommended in the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines which are also endorsed by the IRAS: 1.

Comparable uncontrolled price (CUP) method The CUP method uses the direct comparison of the price charged in transactions of a similar product between independent parties to determine the arm’s length price.

2.

Resale price (RP) method The RP method looks at the resale price margin earned. Using this method, the resale price margin must be comparable to margins earned by independent parties performing similar functions, bearing similar risks and employing similar assets, in order that the price charged is at arm’s length.

3.

Cost plus (CP) method The CP method involves the imposition of an appropriate mark-up to the cost to find the arm’s length price which should be charged. The mark-up to be imposed should be comparable to the mark-up earned by the seller from similar transactions with independent parties, or comparable to mark-ups earned by independent parties performing comparable functions, bearing similar risks and employing similar assets.

4.

Profit split (PS) method The PS method is based on the concept that the combined net profit earned is split equitably between related parties in proportion to their relative contributions. To arrive at the arm’s length price, the value of the contributions which each related party makes to the transaction should be comparable to the value of contributions which independent parties would expect to make under the same circumstances.

5.

Transactional net margin (TNM) method This method examines the net profit margin relative to an appropriate base such as costs, sales or assets attained by the seller from a controlled transaction. Using this method, a price would be considered charged at arm’s length if the net profit margin is comparable to that obtained by the seller from similar transactions with independent parties, or that obtained by an independent party performing comparable functions, bearing similar risks and employing similar assets.

Only FOUR methods required.

5

Derby Superb Corporation (DSC) (a)

Singapore goods and service tax (GST) implications GST is an indirect tax levied on the supply of taxable goods and services made in Singapore by a taxable person in the course or furtherance of any business carried on by that taxable person. Goods are regarded as being supplied in Singapore if they are located in Singapore at the time when the sale is made but a supply of services is not based on where the services are physically performed. A supply of services is regarded as supplied in Singapore if the supplier belongs in Singapore. Where the supplier belongs is based on the location of the business establishment which provides the services or which is directly connected with the supply of the services. As a foreign entity, the first thing DSC needs to ascertain is whether or not it has a business establishment in Singapore. If DSC does not have a business establishment in Singapore and does not belong in Singapore, then it will not have to charge GST when it provides the event management services. The same treatment will apply when DSC charges on reimbursement of the accommodation and entertainment costs to either Singapore or foreign customers.

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DSC is established in Country Z prima facie, it should belong outside Singapore. However, DSC’s customer, located in the US, will be billed from DSC’s Singapore company. To the extent that the Singapore company acts as a dependent agent for DSC by virtue of the presence of an office and permanent staff to help provide support services to DSC’s Singapore customers on an on-going basis, then DSC may be regarded as having a business establishment in Singapore. Thus, it would appear that DSC will be considered as having a business establishment in Singapore. In this case, if DSC makes annual taxable supplies in Singapore, in the course of its business, exceeding $1 million, it must compulsorily register as a taxable person for GST. In determining this $1 million threshold, one has to look at the value of the taxable supplies in Singapore for the current quarter and the past three quarters; or alternatively, the expected value of taxable supplies in the next 12 months. If either of these tests results in a value of taxable supplies in Singapore exceeding $1 million, then the entity has to register for GST. This is unless the Comptroller of GST grants the company a waiver to register for GST despite the fact that the annual taxable turnover exceeds $1 million, usually in cases where the taxable turnover comprises mainly zero-rated supplies. Given that the total income from the event will be $1·5 million, DSC would appear, prima facie, to be a taxable person. If DSC is regarded as belonging in Singapore and is a taxable person, then it is legally obliged to charge GST at the standard rate of 7% on any taxable supply of goods or services made to Singapore customers, unless the goods are exported or the services qualify for zero rating under the GST Act. The exact nature of the event management services provided by DSC needs to be ascertained as the zero-rating provisions under the GST Act are restricted to certain prescribed services only and are subject to the fulfilment of certain conditions. Under s.21(3)(k) of the GST Act, the provision of ‘exhibition or convention services’ can potentially qualify to be zero rated if the services supplied satisfy both the following conditions: – –

the supplier (DSC) contracts with the overseas person (i.e. a person who belongs to an overseas country) in his business capacity; and the services directly benefit an overseas person in his business capacity.

Applying these conditions to DSC’s case, then when it organises the international conference it will charge its US client who belongs overseas (not an individual), and the US company will bear the costs of sending its staff to Singapore to attend the conference, including their hotel accommodation and entertainment costs. In this case, it is correct for DSC to charge the standard rate of GST only on the hotel accommodation and entertainment costs. The event management fees, on the other hand, may be zero rated, given that the above two conditions are satisfied. Zero rating does not, however, extend to the supply of space for the exhibition, which is regarded as a supply of goods in Singapore, and, thus, is subject to the standard rate of GST. It is thus of paramount importance for DSC to determine the exact nature of the services to be provided and so determine the portion of the fees earned which should be accorded standard-rating and zero-rating treatment. It should be noted that while the application of zero rating to part of the supply will mean that no GST is to be charged on that part, and will reduce the overall total amount of GST to be charged (output tax), DSC will still be able to deduct in full any GST it has suffered (input tax) on any expenses incurred in relation to the event because zero-rated supplies remain taxable supplies, although at a nil rate. Similarly, zero rating of part of the supply will not affect the total amount of taxable supplies for the purposes of the annual registration threshold of $1 million. There are no special GST rules or regime applicable to a branding agency in Singapore. Therefore, regardless of whether DSC registers as a branding agency, DSC’s event management activities will be subject to the normal GST rules in Singapore. (b)

Major exporter scheme (MES) The MES is designed to alleviate the cash flow of businesses which import goods or materials for processing which they then re-export. Under the MES, approved traders are allowed to import non-dutiable goods with GST suspended. They can also enjoy GST suspension on goods removed from a Zero GST (ZG) warehouse, such that import GST is only payable when the goods are removed from the ZG warehouse for local consumption. To qualify for the MES scheme, a trader must satisfy the following essential conditions: – – –

Zero-rated supplies must account for more than 50% of its total supplies, or the value of its zero-rated supplies has been more than $10 million for the past 12 months. Maintain good internal controls and proper accounting records. Maintain good compliance records with the IRAS and with Singapore Customs.

19

Professional Level – Options Module, Paper P6 (SGP) Advanced Taxation (Singapore)

June 2013 Marking Scheme Available

1

Maximum

Unique Design Pte Ltd (UDPL) (i)

(ii)

Reasons why Singapore is an ideal location for overseas companies Low corporate tax, extensive tax incentives, partial and full tax exemption No capital gains tax: – general principles – specific provisions as per the e-Tax Guide No withholding tax on dividends and no further tax for repatriation of dividends Comprehensive foreign tax credit system in the form of DTR or UTR Stable tax regime with an advance ruling system

Tax incentives for qualifying headquarters companies Two types of headquarters tax incentives Tax benefits under regional headquarters award (RHA) Minimum requirements under RHA Tax benefits under international headquarters award and requirements

(iii) Tax incentives for setting up research and development (R&D) activities R&D expenditure not deductible under normal rules Definition of R&D Tax deductions available YAs 2011 to 2015

(iv) Tax incentives for transferring intellectual property (IP) Possibility to claim writing down allowances for seven categories of IP Legal and economic ownership conditions Enhanced PIC claim and conditions (v)

Group relief No disadvantages, provided group relief available Conditions for group relief Definition of a group company

1·5 1·0 1·0 1·5 2·0 1·0 ––––– 8·0 –––––

1·0 2·0 7·0 2·0 ––––– 12·0 –––––

0·5 2·0 4·0 ––––– 6·5 –––––

2·0 1·0 2·0 –––––

1·0 1·5 1·0 ––––– 3·5 –––––

Appropriate format and presentation of letter Structure including relevant headings Effectiveness of communication Logical flow

7·0

10·0

6·0

5·0

3·0

1·0 1·0 1·0 1·0 ––––– 4·0 ––––– 35·0 –––––

21

Available 2

(a)

(b)

(c)

3

Computation with non-pioneer profit Net profit Interest Donations Other non-deductible expenses Abatement Capital allowances (apportioned) Interest taxable under non-pioneer trade Qualifying donations under non-pioneer trade Pioneer profits Chargeable income under non-pioneer trade Partial exemption Tax payable

1·0 1·0 1·0 1·0 2·0 2·0 1·0 1·0 0·5 0·5 1·0 1·0 –––––

Computation with non-pioneer loss Adjusted trade profit before abatement: – non-pioneer trade – pioneer trade (as in (a)) Abatement Interest taxable under non-pioneer trade Capital allowances (apportioned as in (a)) Pioneer profits Statutory income – non-pioneer trade Qualifying donations carried forward Chargeable income/tax payable

1·0 0·5 2·0 0·5 1·0 0·5 0·5 1·0 1·0 –––––

Reasons to satisfy Comptroller that the loss was not to obtain a tax advantage Incurred due to depressed sale prices, etc Loss is reasonable and expenses properly charged/apportioned Separate trade already loss making

1·0 2·0 1·0 –––––

Maximum

13·0

8·0

4·0 ––––– 25·0 –––––

Rejuvenate Conglomerate Pte Ltd (RCPL) (a)

Permanent establishment (PE) exposure in Asia (i)

(ii)

(b)

Treaty interpretation takes precedence Fixed place of business Indirect activities giving or not giving rise to a PE (any four activities, one mark each) Attributable profits less expenses Mechanics for the elimination of double taxation Application of FTC – where there is a profit – where there is a loss

1·0 2·0 4·0 –––––

7·0

1·0 1·5 1·5 2·0 –––––

6·0

Individual income tax exposure (i)

Conditions to satisfy to seek tax treaty protection

(ii)

Tax equalisation policy Tax protection policy Reasoned conclusion

3·0 1·5 1·0 1·5 –––––

22

4·0 ––––– 20·0 –––––

Available 4

(a)

(i)

(ii)

(b)

5

Maximum

Supreme Apps Limited (SAL) Both SAL and branch are non-residents Services provided are technical services 17% withholding tax applies

2·0 1·0 1·0 –––––

Apply for waiver and conditions Apply for withholding tax to be applied on a net basis Agree a lower withholding tax rate upfront with IRAS Attempt to convince IRAS that branch is tax resident

5·0 1·0 1·0 1·0 –––––

Transfer pricing methods Identification and brief explanation of any four of the five methods (2 marks each)

4·0

8·0

8·0 ––––– 20·0 –––––

Derby Superb Corporation (DSC) (a)

(b)

GST implications Basic principles: taxable supply by a taxable person Only chargeable if has a business establishment in Singapore Determining whether DSC has a business establishment Conditions for GST registration DSC prima facie a taxable person Conditions to qualify for zero rating (s.21(3)(k)) Application to DSC Zero rating does not affect deductibility of input tax/registration threshold No special GST regime for branding agency Major exporter scheme (MES) How MES works Three conditions to satisfy

2·0 1·0 3·0 2·0 0·5 3·0 1·5 1·0 1·0 –––––

3·0 2·0 –––––

23

15·0

5·0 ––––– 20·0 –––––

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